With a flurry of economic headwinds threatening to blow the US back into recession, investors should focus their portfolios on income-generating stocks and precious metals that have plenty of room to run.
So goes the latest advice from the economically bearish economist David Rosenberg, who sees recession just a few basis points away on the Chicago Fed’s National Activity Index and little on the horizon to offer hope.
As such he offers up seven investment strategies to clients looking to protect themselves from what lies ahead:
1) Focusing on yield, particularly on “high-quality corporates” though he allows for the inclusion of what others might call “junk” bonds from companies with “A-type” balance sheets and “BB-like yields.”
2) Stocks that provide reliable dividends including preferred shares.
3) Whether in stocks or bonds, focusing on companies that have low debt-to-equity ratios, high liquid asset ratios and good balance sheets without heavy debt.
4) Hard assets such as oil and gas royalties and real estate investment trusts, with a focus on income stream.
5) Sectors or companies that have “low fixed costs, high variable costs, high barriers to entry/some sort of oligopolistic features, a relatively high level of demand inelasticity” including utilities, consumer staples and health care.
6) Alternative assets that are “not reliant on rising equity markets and where volatility can be used to its advantage.”
7) Precious metals. Specifically, he says gold as compared to mining output, the Fed’s balance sheet and money supply all indicate that it is far from a bubble, and in fact could rise to $3,000 before it becomes overvalued.
“Even within the equity market,” Rosenberg writes, “there are ways to garner relatively safe income, which is becoming increasingly scarce. The era of aggressive growth is giving way to an era of income equity as the boomers switch more and more of their capital into hybrid strategies…
“If you ask me, this has been for the past two years, and remains, the most compelling risk-adjusted strategy. It is akin to playing the role of landlord: get paid an economic rent while the property appreciates over time.”
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